I’m a tax lawyer based in San Francisco (www.WoodLLP.com), but I handle tax matters everywhere. I enjoy untangling a tax mess from the past, disputing taxes with the government or planning taxes for the future. One of my specialties is advising about lawsuit payments. Whether you’re receiving or paying a legal settlement, you can probably improve your tax position. I write frequently about taxes, from expatriation to sales tax, from selling your company to restitution. I’ve written over 30 tax books, but my best seller is still Taxation of Damage Awards and Settlement Payments. Contact me at wood@WoodLLP.com.

Judge Gives IRS Access To More Accounts At UBS And Wegelin

Just when it seemed as if every Swiss bank account was out in the open, the IRS is on the scent again. A federal judge has approved a John Doe Summons on UBS for secret account data about Wegelin & Co, the indicted and doomed Swiss bank. That means more names of more account holders. See With Indictments, IRS Will Get More Data From Swiss.

U.S. District Judge William H. Pauley III in New York ruled that the IRS can demand information from UBS about U.S. clients of Wegelin. After all, Wegelin already pleaded guilty to conspiring to help cheat the IRS and to hiding more than $1.2 billion. The IRS brought down the oldest Swiss bank with a guilty plea despite the fact that Wegelin has no U.S. offices and no U.S. presence. That by itself was a powerhouse feat. See FATCA Cliff: Tax Evasion Guilty Plea And Death For Oldest Swiss Bank.

Now, the other shoe has landed with a coveted John Doe Summons that will surely turn up records showing U.S. authorities who held assets at Wegelin and other Swiss institutions using the UBS account. With a normalsummons, the IRS seeks information about a specific taxpayer whose identity it knows. A John Doe summons allows the IRS to get the names of alltaxpayers in a certain group.

It’s like fishing with a net and the IRS needs a judge to approve it. It was a John Doe summons that blew the lid off Swiss banking in 2008. A judge allowed the IRS to issue a John Doe summons to UBS for information about U.S. taxpayers using Swiss accounts. Swiss law prohibits banks from revealing the identity of account holders, but the rest is history.

After sniffing out American taxpayers with UBS accounts, the IRS did the same with HSBC in India. See Can Foreign Account Nondisclosure Be A Conspiracy? Now, with another round of names coming, the UBS mess comes full circle. The fact that the Wegelin names will come via UBS may seem ironic. After all, when UBS was under scrutiny, many Americans moved accounts from UBS to the lower profile and more decidedly Swiss Wegelin. With no offices anywhere outside Switzerland, Wegelin was perfectly discreet.

But that was then. Wegelin is now convicted and closing. That may be the last chapter for Wegelin but not for the Swiss banking debacle. More disclosures and more prosecutions seem certain.

In the meantime, this goes down as another big IRS victory. It seems likely to produce more account holders, some of whom may have been fence sitting about voluntary disclosures. If there’s any lesson here, it may be that the fence is getting narrower and sharper.

Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

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Since the IRS can get the information this way, why do they want to impose FATCA on every institution on the planet. They already don’t have the manpower to audit all of the names they got from the previous summons, and to process efficiently the voluntary disclosures. The National Taxpayers Advocate report to congress shows that cases take more than a year to be closed, and that’s when people don’t opt out.

By issuing John Doe summons to the major banks in known tax heavens, they could have achieved the same level of revenue, and saved all the money they’re wasting on FATCA. This is just nonsense. It is amazing that noone is having a rationale approach on this.

The IRS had prosecuted and is prosecuting prior UBS account holders who are U.S. citizens. It would be better if those exposed in this action file voluntary late FBAR disclosures. The object is to show voluntary disclousre before they are contacted by the IRS. That would make prosecution more difficult. There are excuses that may apply for the late voluntary FBAR disclosures. For those affected, it is necessary to get immidate guidance from a qualified tax attorney.

I don’t know if this advice applies across the board, but as a general matter, I believe you are right. It is hard to see how this course of action could hurt, and it clearly could help in many cases. Thanks.

So explain to me again why we need a Global GATCA carpet bombing effort, when these more precision guided missiles by the DOJ do work and have less collateral damage?

I guess the answer is in this sentence by Law Professor Jack Townsend at Federal Tax Crimes http://bit.ly/WNeFvf ” The IRS sometimes finds that the John Doe Summons procedures slow it down.”

They would rather have GREAT BIG GLOBAL COMPLICATED automatic tax data exchanges!

But isn’t that why we have “ due process” enshrined in our legal proceedings, to slow down aggressive, unwarranted and abusive behavior by authorities? John Doe may be slower, but it works!

Yet with our global FATCA, created out of the broken Congressional Legislative process, we are circumventing any ‘due process” based upon reasonable cause that someone is evading taxes. We are happily co-enabling a GATCAwellian world where John Doe Summons are never needed even though they have been effective to the mission at hand – finding those Homeland Offshore Tax evaders!

FACT is, we do NOT need FATCA. With John Doe, “The dam was breached, and the expectation is that the hole will get bigger through exchange of information treaty processes.”

That’s a good question and I’m not sure I have an answer. I think, though, that the Swiss government has been able to take the position that any disclosure is made in way that doesn’t violate the law. In effect, I think they have taken the position that disclosure is permitted pursuant to various exceptions. Some of the exceptions may be somewhat flexible.